When an existing company develops a complete new revenue-generating business concept or new technology, one way it can leverage that opportunity is through a spinoff company. A spinoff is an alternative approach to attempting to implement the new concept into the current business structure. To succeed with a spinoff, you have to consider the legal, practical and structural aspects of the new business.

Spinoff Purpose

When you establish a business, it typically serves a purpose in a particular industry. A fast-food retailer specializes in providing food and efficient service to customers, for instance. In some cases, you conceive a new business idea that doesn't really mesh well with your existing framework from a strategic perspective. It makes more sense to start a new company rather than to add an unrelated facet to your current business. It is often easier to operate and market distinct businesses when they're separate.

Spinoff Drivers

In general, a spinoff is normally driven by a new innovation or technology in a company. However, several factors commonly contribute to the decision to spin off a new business. Often the spinoff evolves when an entrepreneur in the current company develops the new business concept and management believes the new idea can work as a stand-alone concept. A spinoff might be the right move when an idea fits into an evolving industry or is innovative relative to existing products and services.

Business Structure

The structure of a spinoff business varies. If you own a company as a sole proprietor, you start the new business under that umbrella. If your existing business is a partnership, you must normally file registration of the spinoff and ownership in your state. When a corporation spins off, it typically does so by distributing shares of stock in the new company to existing owners. Since the spinoff essentially parses a valuable element of the current business, existing shareholders have a right to partial ownership of the new company.

Spinoff Pros and Cons

An advantage of a spinoff is that you allow very different business concepts to function as separate entities. This can benefit the parent business by ensuring leadership of each company has expertise and focus on managing one operation. From an ownership standpoint, it is sometimes easier to recognize the value of the entire operation when totally different business ideas function separately. You also diversify the business risk. A drawback of a spinoff is that you spread out the resources of the parent company. You also potentially dilute your leadership by dividing it.